California Online Sales Tax Explained | Rates, Registrations, Filings & More

Okay, so California has a very complicated sales tax system and reporting requirements, and it can be so frustrating to have to navigate through all the details. But here at LedgerGurus we deal with this on a daily basis, so I want to cut through the fog and give you all the important tips and tricks to stay compliant in California.

If you want more of a guidance on ecommerce sales tax as a whole, feel free to download our PDF version of the 10 Steps to Ensure Sales Tax Doesn't Burn Down Your Business. It has a very comprehensive list of how to be compliant overall. But in this video, we're going to focus on California. Okay, let's dive in.

1:24 What creates nexus in California

Part one. I want to talk about what creates nexus for sellers in California, who should register.

So as with any other nexus for ecommerce sellers, the first one is if you have physical presence, either through people or property. If you have inventory, if you have employees, if you have an office building, if you lease any equipment, then that creates physical presence for you, so you need to register.

The second thing is if you have an economic nexus. And economic nexus threshold in California is $500,000 for current or previous calendar year. And that includes all of your sales. So sales for resale, exempt sales, marketplace sales, all of those should all be counted for towards that threshold to see if you pass the threshold or not.

So two things to create nexus for you, physical presence and economic nexus.

2:26 Taxability and the three kinds of exemption

After you decide if you have a need to register, an obligation to register in California, the second thing is you need to consider whether your products are taxable, or if there's any exemptions that can be applied to your business.

As I mentioned in a previous video, the type of exemptions are usually three kinds. The first one is if the transaction itself is exempt. In California, if you are a wholesaler and you sell to a retailer, then that is exempt, and you have to register with the CDTFA to get a resale certificate. Or the customers, the people you're selling to, need to register with California to provide you with their resale certificate. You cannot get a resale certificate on any other forms. You have to register with California's Department of Tax and Fee Administration.

3:22

So the second type of exemption applies to the products. In California, there's lots of products that are not taxable. For example, software as a service is generally not taxed in California. Food, supplements, these are not taxed as a taxable product in California as well. And the list goes on, and I will link them below in the description on where you can find exactly what's taxable and what's not taxable in California. The list is a little long, so just give yourself some time if you want to read through it.

So the third type of exemption in California is charitable organizations and government entities are also tax exempt. So if you sell to those customers, make sure to not charge them sales tax.

Okay, let's take a short break. And if you have any questions about registering, about whether you need to register, or whether your products are taxable in California or not, leave us a comment below.

4:27 What the CDTFA registration asks for

So next we want to talk about the registration part and what's unique about California's registration.

First, I just want to mention that California's registration is very long, so give yourself at least an hour time before you sit down and do the registration.

And the second part is they ask for information that lots of other states don't ask for. First, they ask for a picture of your driver's license if you are a US citizen, or a passport picture if you are a foreign entity. And second, they ask for vendors information. So you need to know vendors of your business, where they're located, where their phone number is, and what the business name of your vendors are.

And the third thing is they will send you something in the mail afterwards, like a security code, for you to set up your online account so you can manage your filings electronically. So make sure that you put the correct mailing address on your registration so you can get that security code to set up your account later.

5:33

And you need all of this information ready at your fingertips before you go to CDTFA.ca.gov. That's the website that you go to to register for a permit with sales tax. So CDTFA stands for California Department of Tax and Fee Administration. It used to be like an equalization board that manages sales tax. Now everything's through CDTFA. So you also want to go to CDTFA when it's time to file your sales tax.

6:10 California's four rate levels

And that leads us to our last part of this video. I want to talk to you about sales tax rates in California.

So after you register, you are ready to start collecting. What are the rates you need to collect at? California's rate system is very complicated. It has all levels, from state to city to county to special districts. Four levels of sales tax.

And the good thing is they combine state, county and city together at 7.25% for all the state, county and city. But then the variable part is the district part. Depending on where you sell into, every district has their own, every local jurisdiction can impose a district level tax that can range from 0.1% to 1%. And there can be multiple levels. There can be multiple district tax.

So some parts in California, the least amount would be 7.25% if there's no district tax. But for the places that have a district tax, it could go up to 11%, even 12%.

7:25

So with how complicated that is, and for an online seller, if you're a remote seller not based in California, you have to track every single one of your sales to make sure it's collecting at the right rate. And you have to remit it to the correct jurisdiction.

We strongly recommend having a tool, a software, to help you determine the tax rate at checkout for your customers, so it charges all those four levels of rates, and to help you file. So when it's time for filing, it will categorize all of your sales into those four local jurisdictions.

8:04 Where to get help

If sales tax is still overwhelming for you and you'd like more guidance, please download our 10 Steps to Ensure Sales Tax Doesn't Burn Down Your Business guide in the description below.

And if you're approaching over 1 million annual sales and you'd like to work with us, please reach out to us at ledgergurus.com and we'll for sure get in touch with you.

I hope you like the video. If you found it helpful, please hit the like button, subscribe to our channel, and share it with your other ecommerce friends. And as always, please leave us a comment if you have any questions, and I hope you have a great day. Bye.